Texas Essay Editors
Economics Essays

One pricing strategy that could be used is predatory pricing. This is a short run pricing strategy where a firm prices below their AVC to drive out new competitors. By pricing below their AVC and having a loss, the new competitor will also have to lower their prices to a similar level. This will also mean that they make a loss which, because they won’t have significant cash reserves due to being new in the market, they will be forced to leave. This decrease in competition allows the larger firms to increase their output to the profit-max level of output. It will also increase their long term profitability as there is less competition. However, predatory pricing is illegal in the UK. One non-pricing strategy that a firm could use is advertising. Non-pricing strategies are strategies that firms use to try and compete for market-share without changing the price of their products. Through the use of advertising, the firm could increase their brand loyalty and reach new customers. These new customers will then draw in new revenue which could be used to further increase the advertising budget. However, the cost of advertising could be higher than the extra revenue that it brings in which would lose the firm money. It also depends on the size of the firm doing the advertising as the larger the firm is, the more they can spread the costs out through economies of scale.